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Majority of Real Estate Investors in the Americas Expected to be Net Buyers in 2017, CBRE Survey Finds

Phoenix Advances Two Spots From Last Year to Number 14 on List of Best Metros for Investment

Industrial is Most Attractive Property Type for Investment

More than Half of Institutional Investors Plan to Deploy $1 Billion or More in 2017

The prospect of increased U.S. economic growth combined with less regulation, means that investor sentiment for commercial real estate investment is marginally more positive than last year, despite the potential for rising interest rates, according to the CBRE Americas Investor Intentions Survey 2017. Phoenix advanced to the Number 14 spot on this year’s list of survey respondents’ Best Metros for Investment, moving up from the Number 16 spot last year.

The 2017 survey results reveal that investors will remain actively engaged in real estate investment this year, with the majority (67%) intending to be net buyers (more acquisitions than dispositions). The percentage of net buyers has increased since 2015 (60%) and 2016 (65%). The vast majority of these investors (83%) intend to maintain or increase their purchasing activity in 2017.

Investors continue to be strongly interested in U.S. gateway markets. Los Angeles maintained its position as the most preferred metro for investment in 2017, ahead of Dallas/Fort Worth and New York City. Phoenix is now within the top 15 metros investors are targeting, moving up two places to 14th position. Washington, D.C. moved up the ranks from eighth to the fourth most preferred metro for investment in 2017. Atlanta, Seattle and Houston are also viewed as attractive markets for investment. The majority of investors are focused on real estate in the Americas and do not intend to make asset purchases in other regions of the world.

“Phoenix continued its recent trend of year-over-year growth with investment sales surpassing $9.2 billion in 2016—a slight increase from 2015 but a dramatic 50 percent increase from 2014 levels,” said Craig Henig, senior managing director and market leader for CBRE’s Southwest Region. “Multifamily was the strong investment sales leader in 2016, but Phoenix's industrial and retail sectors also surpassed 2015 levels. Overall, our market fundamentals point toward strong investor interest in Phoenix in the years ahead."

Slow global economic growth that could undermine occupier demand (22%) was identified as the greatest risk factor for real estate investors, just ahead of rising interest rates (21%). Concern that property is overpriced and “a bubble waiting to burst” (16%) is a distant third among the list of potential threats. Investors are relatively unconcerned about the potential effects of government policy measures.

“While investors expect to largely maintain last year’s investment activity levels, they also intend to retreat on the risk curve, becoming more conservative in strategy and risk appetite. This is counterbalanced by the search for yield,” said Brian McAuliffe, President, Institutional Properties, Capital Markets, CBRE.

“Echoing concerns raised at the beginning of 2015, investors perceive the global economy and rising interest rates as the greatest threats to property markets; they also continue to have concerns about asset pricing. If the anticipated level of inflow into commercial real estate materializes, this should to some extent counteract any pricing pressure resulting from a rise in interest rates,” Mr. McAuliffe added.

Half of the investors surveyed (51%) are primarily searching for yield, relative to both government bonds (30%) and other asset classes (21%). This trend is even more pronounced among institutional investors, with 53% searching for yield.

Among the five different asset types by strategy—prime or core, good secondary, value-add, opportunistic, and distressed—value-add remains the preferred strategy (39%) and at similar levels to 2016. Investors’ appetite for good secondary (non-core) assets increased significantly in 2017, ranking second. This displaced core, which was ranked second-highest in 2016. The relatively diminished appetite for core product is attributed to a combination of low cap rates (which are not expected to get lower), weakening property fundamentals, and the search for higher yielding assets.

Reversing 2016 trends, the industrial sector (38%) is viewed as the most attractive asset class for investment in 2017, replacing multifamily (28%), with office (18%) in third position. Reflecting the headwinds in the retail sector from e-commerce competition, only 8% of investors cited retail as an attractive option in 2017, significantly lower than the 17% in 2016. Among “alternatives”, retirement housing was the only sector with an increase in interest, albeit small at 2%. Conversely, there were sharp drops in interest in real estate debt product and the leisure/entertainment sector.

“U.S. industrial has emerged as a preferred asset class for institutional investors, both domestic and foreign. Global investors are targeting the sector for acquisitions and development, especially opportunities with scale. Investors realize that the fundamentals are robust with record-setting metrics for net absorption and rental rate growth, while new economic drivers such as e-commerce and the ‘Last Mile’ are creating even more growth in the sector,” said Jack Fraker, Vice Chairman & Managing Director, Industrial Properties, Capital Markets, CBRE.

Institutional investors (comprising sovereign wealth funds, insurance and pension funds) intend to be strong net buyers in 2017. More than half (54%) of all institutions plan to deploy more than $1 billion of capital in the Americas this year. Marking a departure from the wider pool of survey respondents, institutions are still primarily focused on core assets, closely followed by value-add. CBRE Research estimates that SWFs in particular are under-allocated to commercial real estate (with top 20 SWF’s allocating an estimated 3% of total assets to real estate), which accounts for expected higher levels of capital deployment.

The 22-question Americas Investor Intentions Survey 2017 was conducted among CBRE clients between January 6 and February 6, 2017. The Americas survey is part of the larger global survey, for which nearly 2,000 responses were received.

Nearly 1,000 survey respondents indicated that the Americas is the global region which they are most responsible for in their current position. This report covers the responses of these investors.

The Americas survey respondents represent a wide cross-section of real estate companies and investor types. The largest category is fund or asset managers at 28%, followed by private property companies at 14% of the total. Private equity firms, developers and REITs were also well-represented by the survey.

The survey respondents invest in a wide variety of investment modes. Most investors use multiple types of investment vehicles (and chose multiple types in the survey).